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Carriers turn against Apple

Nov 21, 2011 5:11am

Google and Apple may have become sworn enemies, but their thinking has often been similar. Just as Google has made various stabs at operating its own wireless networks and bypassing the carriers, so the same idea was in Apple chief Steve Jobs' mind, according to US wireless heavy-weight John Stanton.

Stanton, currently chairman of venture capital firm Trilogy Partners, told a conference in Seattle [last] week that Jobs had hoped to create his own Wi-Fi network to support Apple's mobile devices and services, rather than partnering with cellcos. That would have suited the heavily controlled, end-to-end model which comes with the iPhone, but as Google also found with its first Nexus devices, the mobile carriers are not so easily ignored, with their massive customer reach and expensive networks.

Stanton said he spent a lot of time with Jobs in 2005 to 2007. “He wanted to replace carriers,” said the executive. “He and I spent a lot of time talking about whether synthetically you could create a carrier using Wi-Fi spectrum. That was part of his vision.”

But after that period, Jobs gave up the idea in favor of working with operators – but under Apple's own terms, and in a way which has certainly shifted the balance of power today. "If I were a carrier, I'd be concerned about the dramatic shift in power that occurred," Stanton added. Some analysts believe an Apple-run network is an idea the firm will revisit.

Stanton had his own advice for operators seeking to wrest back some of that power – take risks with new phones and services rather than playing it safe, as Sprint has done by signing an expensive iPhone deal at a later stage than its rivals.

[He] recounted his own experiences as head of Voicestream (later T-Mobile USA), and as the first employee of the original US cellco, McCaw Cellular (which became AT&T Wireless). He also started Western Wireless, later acquired by Alltel, which is now part of Verizon. He said unique devices were important to cellcos, and that Voicestream took a gamble on the Danger Sidekick and the BlackBerry. "We had investments in those spaces because in part we were the little guy and we wanted access to unique devices," he said.

The…conundrum for Apple is, despite the continuing mass appeal of its iPhone, the product is no longer the unique device it used to be, and that is seeing cellcos trying to grab back some of the power they have lost.

China Mobile has repeatedly refused to bow to Apple's terms, and is now said to be upping its own demands to include a revenue share in the App Store. US Cellular recently said the costs associated with the Apple product did not justify selling it, especially now nearly all carriers have one. And NTT DoCoMo of Japan, one of the operators most accustomed to having the upper hand in a supplier relationship, is the latest to try to break the industry's relationship with Apple.

CEO Ryuji Yamada told Dow Jones that his firm was still in talks with Apple about bringing the iPhone to its network in Japan, where Softbank has prospered from a long standing exclusive [deal]. But he said the conditions remain unacceptable so far, particularly the high volume targets on which Apple insists.

These might have been reasonable in the early days, when a cellco might have exclusive rights to the iPhone and there were few smartphone choices, but now, as Yamada said, “if the introduction of the iPhone results in the mass majority of our products occupied by the iPhone, then that's a scenario that's difficult to us to swallow.”

He insisted: “We haven't given up our hope of introducing the iPhone,” but he also has problems with the closed nature of iOS, which prevents DoCoMo from pre-installing some of its own apps, which may be an essential part of its user experience – for instance, its e-wallet and its i-Mode email service. China Mobile has some similar concerns, and Asian carriers are more accustomed than their European counterparts to delivering a mobile experience which is heavily tied into their own brand and applications.

KDDI, Japan's second cellco, recently broke Softbank's exclusive when it started to carry the new CDMA version of the iPhone, and both operators said strong demand for the Apple product had boosted their profits in the most recent quarter – one in which DoCoMo's net profit fell. But the company has been building up its own smartphone portfolio after a slow start into this space, relying in particular on Sony Ericsson Xperia and Samsung Galaxy S models.

Yamada said Android accounts for 70% to 80% of the Japanese smartphone sector, while the iPhone has only 20% to 30%. There are also many Symbian handsets, but these are so tightly tied into the carrier platform that they do not count as open smartphones (DoCoMo has its own implementation of Symbian, supported by its closely controlled local suppliers such as Sharp).